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Overstock Prevails, Patent Trolls Defeated

Overstock.com, Inc. (NASDAQ: OSTK) recently announced that plaintiffs in two patent infringement lawsuits dismissed their cases against the company without any settlement or any money paid.

“They just walked away,” said Patrick M. Byrne, Overstock.com chairman and CEO. “Patent trolls find us unappetizing. While we have the highest respect for intellectual property rights, we don’t settle abusive patent suits—we fight.” Byrne added, “You can’t fork over your lunch money today, and expect a bully to leave you alone tomorrow. Patent trolls understand a bloody nose and in the long run, it’s the asymmetrical response that pays off. It is only right that we take this opportunity to make explicit this litigation strategy. As Dr. Strangelove says, ‘What’s the point of having a Doomsday Device if you don’t tell anyone about it?'”

Over and over again I have written that the solution for companies who are being sued by patent trolls is to simply fight rather than settle. See, for example, Fighting Patent Trolls is the Real Solution.Yet, most companies naively choose to settle frivolous troll cases and at the same time aggressively litigate patent infringement lawsuits where the patents are strong and evidence of infringement real. This is exactly backwards. If more companies followed the Overstock model the industry would rid itself of frivolous extortion-like cases once and for all in just a few years.

That there are bad actors is hardly surprising, particularly given the lucrative nature of the business model and the fact that many district courts simply do not police their courtrooms as much as they should early on in the process. I know that the law and process is set up to believe that bad actors will not abuse the process, but where there is overwhelming evidence that inefficiencies in the judicial process are being routinely exploited that means that some judges within the federal judiciary is allowing the courtroom to be used as center stage in what can only honestly be called a shakedown. Of course, district court judges possess considerable powers that can be exercised to stop the bad behavior, see Judges Can Make Patent Trolls Pay, but judges cannot stop the bad actors alone. All too often companies settle frivolous cases for a few thousand dollars and then naively proclaim that it is better business to settle than to fight.

As litigators of a certain vintage will remember, during the 1980s the auto insurance companies would settle everything, just like most tech companies do today when faced by bad patent infringement cases. They would dispose of the case for nuisance value and feel confident in the believe that they had saved money doing so because, after all, they could pay their attorneys and ultimately lose.

It doesn’t take a rocket scientist to figure out what happened as a result. Every attorney signed up every client they could who had been in an auto accident, even if the client was at fault. There was easy money to be had because insurance companies would settle bad cases. It wasn’t until about the early 1990s that the gravy train was over and auto insurers figured out that they had to fight and stop settling specious claims. And fight they did. And the tide turned completely in favor of the insurance companies. The lesson was and is clear: If you don’t fight you make yourself an easy target.

Griffin noted that the most recent plaintiff to dismiss first proposed a “no-money” settlement, but insisted on confidentiality to keep the walk-away quiet. Overstock.com flatly refused. “We want everyone to know they left empty-handed,” Griffin said. Good for Overstock! Fighting is only half the battle really. As Justice Brandeis once said “sunlight is the best disinfectant.” The troll industry could certainly use some disinfecting.

Griffin also said that Overstock.com redoubled its defenses in that case, and last week the plaintiff, Execware, LLC, called Overstock.com’s lawyers saying, in effect, it had had enough and was dismissing the case. In February, another patent troll, Eclipse IP, LLC, came to the same conclusion and dismissed its case.

Jonathan Johnson, executive vice chairman of Overstock.com, and its former president and general counsel said, “Many companies settle frivolous suits because it is much cheaper than fighting. That’s shortsighted. The best practice is to never settle frivolous troll suits at all.”

And as that word gets out what you will see is that over time Overstock will not be the defendant in frivolous patent infringement cases. The owner of a bad patent where there is no infringement simply has too much to lose to sue a company like Overstock that has a zero tolerance policy.

So the question remains, will other tech companies see the light, or will they keep settling frivolous patent lawsuits brought by patent trolls? The more they continue to pursue an obviously flawed and rather ridiculous strategy the more it seems like the tech elite want to perpetuate the patent troll problem so that they have a bogeyman to vilify on Capitol Hill in an effort to get the so-called reforms they want enacted into law, most of which would only destroy the patent system and make it exponentially more difficult for start-ups and small businesses to succeed.

The Author

Gene’s particular specialty as a patent attorney is in the area of strategic patent consulting, patent application drafting and patent prosecution. He has worked with independent inventors and start-up businesses in a variety of different technology fields, but specializes in software, systems and electronics.

Gene is admitted to practice law in New Hampshire, is a Registered Patent Attorney licensed to practice before the United States Patent Office and is also admitted to practice before the United States Court of Appeals for the Federal Circuit.

Gene is a graduate of Franklin Pierce Law Center and holds both a J.D. and an LL.M. Prior to law school he graduated from Rutgers University with a B.S. in Electrical Engineering.

Warning & Disclaimer: The pages, articles and comments on IPWatchdog.com do not constitute legal advice, nor do they create any attorney-client relationship. The articles published express the personal opinion and views of the author and should not be attributed to the author’s employer, clients or the sponsors of IPWatchdog.com. Read more.

Discuss this

There are currently 11 Comments comments.

I Can't Buy a PoliticianApril 2, 2014 11:28 am

The inventor named in 1995 when US Patent 6,216,139 was filed is the same as Exceware’s Robert Listou, the CEO.

Robert Listou filed his patent BEFORE Overstock ever existed!

But inventor Robert Listou fits the ‘definition’ of a “Troll” ?? wow….We are living in a new Patent Bizarre-O- World that is now controlled by huge Tech OEMs and IP Companies that have spent hundreds of millions to buy up the US Politicians.

These pigs get their Politicians to slam thru the AIA and its tweaks in order to allow for an even more ‘Efficient Infringement’ scheme to work.

All this destruction of the Patent System is taking place to allow these Tech Pigs to steal at will, the innovations created and Patented by the small inventors. All done without ANY fear of anyone or anything to prevent such unmitigated rape and pillage of an individual’s rights and ownership.

It is pure greed and power. The Rule of Law replaced by the Rule of the Corporations, it is just that simple.

It is working better than they even imagined, in short order the ITC is now a dead venue.

Be very careful what you wish for, cause this Killing Machine is going to be turned upon the Tech Pigs as the Asia copy-kats will consume them by importing the knock offs at will. A hollowed-out and neutered US Patent System will not stop no one.

But, in a few years’ time, today’s executives at the Tech Pig Cabal will be gone, retired on an Island and it is someone else’s problem.

angry dudeApril 2, 2014 1:34 pm

This affects a lot of industries and players, not just small inventors in tech/software space

Patents are a critical ingredient in, for example, medical or surgical device industries, e.g. ultrasound therapy or imaging, or heart stimulators or prostetic devices or surgical instruments etc.
Without enforcible patent protections those companied doing initial R&D, prototyping and approval are doomed – who in his right mind would finance them when the end product can be taken apart in order of hours and complete blueprints provided to china copycats for cheap manufacturing and importation from overseas?
Same with pharma – hard to discover right drug but very easy to analyze it and reproduce

We, CS and EE types, at leasts have some degree of protection with copyrights or trade secrets, e.g. the ability to encrypt your valuable code and protect it from unauthorized copying using USB dongles or tamper-proof secure DSP chips (my favorite from now on)

I am starting to think that a lot of people in wash dc are enemies of the state – selling out this country for pennies

SteveApril 2, 2014 4:28 pm

Great points I Can’t Buy and Angry.

Indeed, we need look no further than the ongoing war between Apple and Samsung for proof of the deleterious effects of our weakened patent system … where even Apple can’t stop Samsung from importing their infringing smart phones into the U.S.

Big Corp is not beholding to America and will always seek lowest cost factors anywhere in the world.
Big Corp will play the patent game, but will also drive that patent game to the extremes of higher cost, slower processing, and more uncertain (and enforceable) rights.

One only has to look at the AIA to see such fruits. Ask yourself who exactly is behind world patent harmonization.

Why? you may ask. The answer is simple. Patented innovation is disruptive. Patented innovation can be a game-changer, a leveler of all other things that Big Corp has in abundance: size, market share, and the like. And strong effective patents leave the choice of who to exclude (and who not to) in the wrong hands (that is, in any hands other than those of Big Corp).

Look too to the insanity of the rhetoric behind the “Troll” witch hunt. In no conversation will you see the benefit of a “Troll” in breaking up a patent thicket brought into the discussion. The ability of a “Troll” to demolish the Big Corp Patent Armageddon strategy of having a massive war chest of patents – such that something can be used to threaten any actual manufacturing competitor into oblivion is a feature of the US patent system – not a bug.

AnonApril 2, 2014 5:47 pm

(and enforceable) should read (and less enforceable)

Michael LinApril 3, 2014 7:28 am

I wonder if Overstock will file a request for attorney’s fees.

BennyApril 3, 2014 8:21 am

Can’t says, “The inventor named in 1995 when US Patent 6,216,139 was filed is the same as Exceware’s Robert Listou, the CEO… ” But what was not made explicit in the article was whether Overstock was actually infringing Listous’ patent. If they were not, then Listou was trolling. If they were – he was done an injustice. Without knowing if there was an infringement, I can’t reach a conclusion.

angry dudeApril 3, 2014 9:30 am

Benny

perhaps you should know that there is no definitive answer to your question in many patent-eligible arts

In my field (which is sufficiently close to yours I believe – I deal with complex DSP algorithms which can be implemented in eather software or as hardware chips) even if I am 100% sure that someone is infringing, then I would give myself at best 80% chance of winning claim construction and actual jury trial in a FAVORABLE jurisdiction (like E Texas or Delaware)

That’s the big problem with US patent system and all those provisions like fee-shifting: patent litigation is a crap shoot

Patents are not absolute (excluding very few fields like pharma, chemical compositions etc)

BennyApril 3, 2014 10:11 am

Angry,
You say “patents are not absolute”. That’s a heavy statement, I’m not sure everyone here would agree with you.
Patents should be absolute, and if they are not then the attorney who wrote them is at fault. Shouldn’t the patent holder himself have a clear idea of when when his own invention is being stolen?
In my field – robotics – most of the patents concerning mechanical contraptions (knurled flange brackets, etc) more or less define boundaries, and if they do not, it is often a case of poorly written claims. I have seen office actions complaining of indeterminate language and demanding a clean up.

angry dudeApril 3, 2014 11:11 am

Benny

Patents are not absolute when it comes to e.g. complex algorithms on e.g. encryption, compression of audio or video, wireless communications etc
Patent attorneys will try to do their job but sometimes it is very hard for them to have clear general picture – the stuff is extremely complex – its advanced math at its essense

And I am not even talking about poor patent examiners – i’ve seen some office actions where it looked like examiner read some completely different patent application for a different invention – in other words examiner did not have a slightest clue.

It also happened to me – I had to come for personal interview with the examiner after reading through his first office action…
I had to present short lecture with slides and simple demos so the examiner could have some clues

And you are talking about judges and juries in patent trials ? :):):)

AnonApril 3, 2014 11:16 am

Benny,

“Heavy“… ? agrees“… ?

You continue to disappoint me with your views on legal matters.

You want something “absolute” and then complain about “legalese.” You just lack a basic appreciation for the legal world of patent law. You seem intent on not understanding there is a very real difference between the purely technical world and the legal world.

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